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Sahil Malhotra-2010195
Vivek Parekh-2010281
Rituparna Adak-2010182
Siddharth Mohpatra-2010274
Rohit Deshmukh-2010185
Sarita Chowdhary 2010296
The Strategic Levers of Yield Management
Article review
Application of information systems & pricing strategies
‘‘To sell the right capacity to the right Customer at the right prices’’
Implicit: notion of time-perishable capacity and segmentation of capacity
Yield Management ( traditional way)
Managing the four C’s of perishable service to manage a fifth C, customer demand, in such a way as to maximize profitability.
C - calenderC - clockC - capacityC – cost
Fifth dimension: Costumer demand
Yield Management (modified)
PricingDuration of customer use
Pricing can be fixed or variableDuration can be predictable or unpredictable
Strategic Levers
Positioning of selected service industries
Before Deregulation most of airlines in U.S were in quadrant 1.
After deregulation many airlines emergedLow cost strategy : Peoples expressNew computerised reservations system &
variable pricing on flight –by-flight basis:- Most of major carriers e.g. american airlines, united airlines etc
Faliure of people express and most carriers shifting to quadrant 2
Airline Industry
Previously operated on origin destination basis later shifted to hub and spoke model
It prevented airlines from managing predictability of their duration causing them to move towards 4th quadrant
Problems:Passenger obtain lower fare on one legEmpty seats on flight- lost revenue
Southwest airlines resisted this temptations and remained in quadrant 2 to be competitive
Traditional hotel industry was located in 3rd quadrantFixed rate per nightLength of stay not considered
Impressed by airline industry shifted to yield management- variable pricing to hotels
Relied on top down pricingForte charged one rate and concentrated on
length of stayMarriott forecasted by arrival day length of
stay and room rate to able to determine best set reservation request.
Hotel Industry
Using strategic levers
DURATION METHODSTO INCREASE
CONTROL OVER DURATION:
Reduce the uncertainty of arrival
Reduce the uncertainty of duration
Reduce the time between customers
METHODS OF MANAGING DURATION
REFINING THE DEFINITION DURATION
How long customer uses our serviceMeasured either by TIME or by EVENTBetter forecasting possible if measured by TIME
rather than by EVENT.
UNCERTAINITY OF ARRIVAL
INTERNAL APPROACHESOverbooking» Markovian decision process or simulation approaches» Service level approaches or » Critical fractile method(News-Vendor Model)
Displacement Strategies» Time of Arrival» Frequency of use» Perceived importance
UNCERTAINITY OF ARRIVAL
EXTERNAL APPROACHES Shift of Responsibility of arriving to the
customers• Deposit policies• Cancelation Penalties• Make customers more responsible for arriving• Service guarantee (Positive incentive)
Internal Approaches:-Forecasting length of use and improving consistency
of service delivery
-Forecasting time of start and end of service usage
-Rather than predict by flight leg they should predict for all possible origin-destination pairs
-Consistency of duration like TGI Friday
External Approaches:-Penalties
Hence Best approach is Internal Approach.
Uncertainty of Duration
Time Reduction between Customer• Changeover time reduction:
– Increase revenue per available inventory unit– Try to serve more customers by reducing the
changeover time.– Ex- Southwest airlines, Indigo
Continued…Use of Differential Pricing for profit line
yield management
Quadrant based pricing for each airline
Resentment from the customers for being charged with different prices for essentially same service
PRICE
Proper Price Mix
Companies must be sure while designing the proper price mix.
Optimal Pricing policies were designed by Taco Bell.
It determines relatively a simple way of determining the price sensitivity and acceptable price range.
Although not very popular.
Rate Fencing
Wide variety of prices charged for essentially the same service.
Quadrant 2 industries often use this type of pricing.
Can be physical or non physical in nature.Physical rate fence include tangible features.Non-physical rate fences include rewarding
customers.It also include cancellation or change facilities
and benefits based on the prior reservations.
Pricing can be applicable in following domains:Airline IndustryHotel and Resort IndustryCar Rental ServicesInsuranceFinancial Advisory ServicesCredit Card Services
Moving to a more Profitable Quadrant
Case of Movie Theatres• American Movie theatres did not have
differential pricing.• In Indian context, movie theatres had
differential pricing on the basis of seat location• Other variables can be used to efficiently
distribute pricing, such as:– Show timings (as in the case of multiplexes)– Luxury services to certain class of customers
Differential Pricing-Quadrant 1 to Quadrant 2
Case of golf courses• Service consumption time is highly variable• Need to control and shorten the service
consumption time in order to maximize profitability
• Arrival uncertainty can be tackled by– Deposits or overbooking
• Duration uncertainty to be tackled by:– Forecasting play length– Providing golf carts to speed up time between
holes
Control Duration:Quadrant 3 to Quadrant 1
Case of Health Care Industry• Duration is different for each case• Patients can be classified on the basis of
their health• Trying to control patient stay is a
controversial case
Control Duration:Quadrant 4 to Quadrant 2
Case of Internet Service Providers• Fluctuating load on ISPs• ISPs overbook the connection• Heavy load during peak hours
mean deteriorated service.• Differential Pricing can be used
by:-– Analyzing the peak hours– Giving discounts or charging
penalties accordingly
Differential Pricing-Quadrant 3 to Quadrant 4
• Yield Management offers a clear advantage of Maximization of Revenue
• Effective use of Strategic lever of pricing and duration control can help.
• Even company using it already can improve its performance.
Conclusion
Thank You